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What can India offer the US?

October 08, 2004 12:40 IST

Billed as a foreign policy debate, the first face off between President George Bush and Senator John Kerry was notable for its narrow geographical focus. Apart from the Arab-Israeli conflict not finding any mention, large swathes of the world with vital American economic interests failed to register.

China came up only in the context of North Korea while India's newly developing role as a strategic ally on economic and even foreign policy areas was left out entirely. The next two debates are unlikely to change that even with one of them promising to focus solely on economic issues. That omission may, in fact, be good for both India and the US. For, regardless of who occupies the Oval office after January 20, India's economic growth is bound to command the attention of the new administration

In decades past, when India found mention in the US and western press it was largely unwelcome, particularly to Indians. With a focus on natural calamities, regional wars or exotica it rarely got the attention of policy makers in the US. That changed with the enormous and sudden growth of the IT industry. But it all quickly turned sour when the US economy failed to pick up steam well into the Bush presidency and the Democratic challenger raised the contentious issue of outsourcing. 

Nevertheless, the controversy has not stemmed a rush to establish a beachhead on the Indian subcontinent. An astonishing number of American icons such as American Express, Citibank, Dell, Hewlett Packard and IBM along with numerous lesser known companies have seen it expedient to move substantial aspects of their business to India. While a curious aside is the breathtakingly small number of EU companies who have followed this path, another little noticed aspect is the establishment of 'front office' operations in India by several US companies. Even as call centres and back office operations have hogged all the (largely negative) limelight, some companies such as Morgan Stanley have quietly moved some front office functions off shore as well.

With potentially weightier implications for US employment, the skills sets for front office operations revolve on proprietary knowledge and expertise unlike the labour dominated back office operations. The multitude of specialised jobs available through Internet portals in India attests to this new trend. The most prominent of these is www.naukri.com which claims to be the largest job site in India. Recognising the enormous growth potential of both jobs and their seekers on the web, Monster worldwide escalated their stake in India by assuming full ownership of www.monsterindia.com last year. Beyond that, many corporate giants have established India specific job postings on company web sites seeking to attract talent within that country.

The Indian response to the explosive growth has centered around the skills shortage that is likely to come about over the next few years. While that certainly is an issue of considerable importance, few of the many companies who have reaped vast dividends from the IT trend have attempted to aggressively combat the broad, if hazy, perceptions in the US that outsourcing represents an evisceration of  domestic jobs. Hoping that a revival of the US economy will sweep the rhetoric of the protectionists aside may not be a sustainable strategy for Indians and India as a new trough in the economic cycle may well revive the negative, if ill-founded, sentiment against outsourcing. Even the venerable economist Paul Samuelson has chipped in with the view that there are longer term negatives to the US by asserting that it will reduce per capita income in the US. The implication that it would cause an erosion in the US's competitive advantage was quickly countered by prominent proponents of free trade, such as Dr Jagdish Bhagwati who noted that the dynamism of the US is likely to disprove that dire prognosis.

Nevertheless, India could not hurt itself by considering a pro-active response. For starters, acting in concert with the beneficiaries of the IT boom, it can try and address the socio-economic concerns of the US market by using history as a guide. In responding to the firestorm caused  by the recession of 1981, Japanese automobile manufacturers embarked upon a 'voluntary export restraint' (VER) program that limited the number of cars exported to the US. Even though data from succeeding years show unambiguously that it harmed the domestic consumer (and enriched inefficient US automakers), it served to still criticism from the Reagan administration and other protectionists.

Many rational observers have noted that the outsourcing train has long since left the station and some such as the CEO of Quark, the US software company, have bluntly called its opponents 'stupid.' But to avert malevolent and costly derailments, proponents and interested parties ought to think strategically on managing the contentious side-effects. An offer from India and interested economic parties to augment investment in R&D and even education in the US is likely to be viewed favourably by all but hardened economic isolationists such as trade unions. With a far more compelling economic story and no ill-effect on the US consumer, it is arguably a better sell than the VER that was bought so readily back then.

Vijay Dandapani is Chief Operating Officer Apple Core Hotels, New York. These are his personal views. 

Other columns by Vijay Dandapani

Pauper or sovereign?

Economic growth is the best contraceptive

This is the time to demand a Security Council seat!

Vijay Dandapani